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1. Chapter 1 T he Framework of ___________ Business

2. Learn here about … • business enterprises, not-for-profit organizations, factors of production; • competition, entrepreneurship and private enterprise; • the contemporary relationships era; • technology in business operations and competition; • quality, customer satisfaction and value creation; • productivity and competitiveness in the global markets; • trends that challenge managerial effectiveness; • skills that managers need to lead businesses today; • ethics, social responsibility and business decision making.

3. Business enterprises, not-for-profit organizations, factors of production Kathy Ireland Worldwide Commerical for Kathy Ireland Worldwide ...Kathy Ireland Life- style Design Company Michael Dell's Advice to the Entrepreneurs 02:27 From:iluvthecold85 By business we imply all the profit-seeking activities and enterprises that provide the goods and services required to run an economic system. Here, “profit” is the reward or return that a business enterprise receives as compensation for the risks undertaken in providing the goods and/or services to customers.

4. Broadcast Your Cause – YouTube Nonprofit Program 02:09 From:citizentube Five News | Naked Charity Calendar 02:52 From:fiveyournews The “not-for-profit” organizations are all those businesslike establishments whose primary objective is to provide service to their consumers and excludes returning profits to the owners. These organizations usually serve social, political, governmental, educational or the like functions.

5. We can also classify different businesses as … • Business-to-Business (B2B) • Business-to-Consumer (B2C) • Consumer-to-Consumer (C2C) • Consumer-to-Business (C2B) Business Consumer Business Consumer

6. Factors of production … Factor Payments Rent • Natural resources(basic materials like agricultural land, forests, minerals, building sites and facilities etc.) • Capital(money, technology, tools, information, physical facilities) • Human resources(workers’ physical labor as also talents and/or intellectual inputs) Interest Wages • Entrepreneurship(willingness to take the needed risks to create and operate business) Profits are the materials and inputs needed for successful operation of the business; and comprise …

7. The Private Enterprise System Macro-economics08:26 From: Soraal • Businesses in the U.S., and now increasingly worldwide, function within the private enterprise system — the economic system that rewards enterprises for their ability to perceive and serve the needs and demands of the consumers. This is also called capitalism or, more specifically, consumer capitalism. • Philosophical basis of capitalism was laid out by the British philosopher and economist Adam Smith (1723-1790) who first argued, in his celebrated treatise An Inquiry into the Nature and Causes of the Wealth of Nations (1776) that, in exercising the right to pursue his (or her) own good, the individual is led by an in-visible hand, to achieve the best good for all. Any governmental interference with free com-petition will most certainly be injurious, he therefore argued.

8. Capitalism comes in many shades, however. For instance, in the book “Good Capitalism, Bad Capitalism” (by William Baumol, Robert Litan and Carl Schramn: Yale University Press, 2007), the authors discuss four forms of capitalism: • entrepreneurial, • big-firm (corporate), • state-directed, and • Oligarchic. Click image, above, to go to the Council on Foreign Relations site to see Carl Schramm and Robert Litan discuss their book Good Capitalism, Bad Capitalism and the Economics of Growth and Prosperity. You can access this book at the class website of at the following URL: http://www.yalepresswiki.org/gcbc/GCBC_Entire.pdf

9. A private enterprise system rewards the firm/business for its ability to identify and serve the needs and demands of its customers, and therefore operates in the framework of four basic rights: • Right to private property: Every participant has the right to own, use, buy, sell, and/or bequeath most forms of property. Private Property Com-petition • Right to profit: Every firm/business has the right to all profits, after taxes, it earns through its operations/activities. Rights • Right of free choice: Every participant in thesystem has the freedom ofchoice (with regard to jobs,purchases, and investments) Freedom of Choice Profits • Right to compete: Every parti-cipant has the right to compete freely and fairly in the marketplace.

10. Judging from the American experience, Entrepreneurial Capitalism … • promotes continued economic growth, e.g., • one in seven current organizations began operating within the current year; • more than one in every five new jobs has been created by new small businesses; • nearly 12 million U.S. employees currently work for businesses with fewer than ten employees; • encourages finding novel means to use natural resources, technology, and the other factors of production; • helps existing large companies by enhanced flexibility, improved innovation and new market opportunities; • enhances efficiency and competitiveness by creating new industries, developing successful business methods and improved U.S. standing in the global market.

11. Service Providing Jobs 1970 Total Employed: 71 million • Trade, Transpor-tation and Utilities • Information • Financial Activities • Professional and Business Services • Education and Health Services • Leisure and Hospitality • Other Services • Government a a b 8 b 7 c 8 c Goods producing 6 7 Service Providing 5 4 6 1 1 3 2 Goods producing 5 2 3 Service Providing 4 2007 Total Employed: 137.6 million • Goods Produ- • cing Jobs • Natural Resources and Mining • Construction • Manufacturing 2 All additional jobs in the U.S. since 1970 have been created in the economy’s service providing segment. Data source: Bureau of Labor Statistics ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb1.txt

12. Population, in millions 300 >65 years 70% 14% 250 45-64 years 200 65% 12% 150 16-44 years 60% 10% 100 50 <15 years 55% 8% 0 1940 1960 1980 2000 50% 6% 1940 1960 1980 2000 16-64 years (left scale) 65-plus years (right scale) The aging of the U.S. population. Data source: 2008 Economic Report of the President http://www.gpoaccess.gov/eop/2008/B34.xls

13. Small Business owners are not an uneducated lot!!! 4% Not reported 19% Graduate School 24% High School or less 24%Bachelor’s Degree 28% Some College Source: U.S. Census Bureau “Survey of Small Business Owners (SBO): Owner’s Education Levels at Start-Up, Purchase, or Acquisition of the Business” (http://www.census.gov/csd/sbo/edu.html)

14. History of American Business — Six Eras • The relationship era(since 1990s) seeks long-term consumer and worker-loyalty. 2000 David Silverman "Advice for Starting a Business“. "What is the number one piece of advice for anyone starting their own business?" Interview with David Silverman. 1900 • Industrial revolution(1760-1850) began in England and France but peaked in the U.S. It shifted the focus on individual craftsmanship to mass-production, so bringing in the economies of scale. This was a period of rapid growth and urbanization: agriculture became mechanized, factories sprang up in the cities, a new railroad system increased the pace of industry. 1800 • The marketing era(since 1950s) began with the Great Depression, when excess production and poor demand shifted the focus from mere production and distribution to marketing, selling and advertising. It accelerated in the post-WW II boom, though. Increased competition made branding important. • The production era(through the 1920s) met the growing demand for manufactured goods with an increase in huge labor-intensive assembly-line factories, specialization of labor, and the rise of the manager, to focus on producing more goods at a faster pace. Marketing was minimal. • Industrial entrepreneurs(late 1800s) created countless commercially useful products, so advancing the U.S. business system that raised the overall standard of living by creating the demand for more goods, e.g., Cornelius Vanderbilt (railroads), J.P. Morgan (banking), Andrew Carnegie (steel). • Colonial(before 1776):Localeconomy depended on farm and plantation outputs, and on England for the manufactured items and finances.

15. Citi Commercial 2008 Citi Never Sleeps TV Commercial Citi Commercial 2008 (Chinese) Citi Commercial Father and Son citibank identity theft commercial - underpants on 6 The Relationship Era (began in 1990s) Businesses take a long-term approach to interactions with customers to build loyalty and improve customer retention.

16. Managing Relationships through Technology • Relationship ManagementCollection of activities that build and maintain ongoing, mutually beneficial ties with customers and other parties. • Involves gathering knowledge of customer needs and preferences and applying this understanding. • Many of these activities are based on technology, the business application of knowledge based on scientific discoveries, inventions, and innovations. • Communication with customers often aided by technology, particularly the Internet, e.g., Stonyfield Farm’s use of blogs to reinforce customer relationships. Dave Olsen, Starbucks - Haas Event the best companies to work for in America as well as one of the most admired.Starbucks Cofounder Dave Olsen speaking at the Haas School, UC Berkeley, on his successes and the importance of "Leading from the Heart." Bovine Bugle